Global Political Risk is 'what keeps us up at night'

We recently had an investor ask ‘what keeps you up at night?’. In thinking through the myriad of risks, the one that concerns us most is global political risk. With inflation soaring and growth slowing, it is hard to find a leader who has a higher approval than disapproval rating these days, with the exception of India’s PM Mr. Modi. Across Europe, with high gas prices and risks of gas supply shortages this winter, leaders are under pressure. But our concern is not with approval ratings but with disruptive political unrest. We have already seen this in Sri Lanka, where protesters drove the Prime Minister and President from office, leaving the country in a vacuum at a dire time for the economy. Pakistan is also seeing political protests aimed to bring ousted PM Imran Khan back to power. Both Pakistan and Sri Lanka are facing high inflation of 21% and 54% respectively, and their currencies are under pressure. The assassination of former Japanese PM Shinzo Abe has created instability in the north Asian region, the result of which is still unknown. Later this year, the two largest economies in the world will hold important ‘elections’, with President Biden’s Democrats likely losing control of Congress, and President Xi possibly seeing his grip loosened on the Politburo Standing Committee. The War in Ukraine has led to a material shift in geopolitics, with the expansion of NATO and global re-militarization. Nancy Pelosi’s Taiwan visit has added further tension. As part of our top-down macro analysis, we include politics in shaping our country and regional views as political change can impact economic growth and equity market returns. We are closely monitoring heightened political risk as we believe political unrest is a real danger to global stability.